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By Jason Stipp | 07-27-2011 12:40 PM

2Q GDP: Down But Not Out

A tough quarter for autos will pressure Friday's GDP number, but growth should recover in the second half, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. On Friday we get the initial government report for second-quarter GDP. A lot of economists are expecting to see a slowing in GDP growth.

What should you expect? Here with me to offer some insights is Morningstar's Bob Johnson, director of economic analysis.

Thanks for being here, Bob.

Bob Johnson: Great, to be here.

Stipp: So, we are seeing a consensus opinion for slower growth in the second quarter. What is the range of opinions that you see out there for second-quarter GDP and what are you thinking that you're going to see on Friday?

Johnson: You know it's really a broad range this time. Usually the numbers are pretty narrow because you do have lot of the components in, but this time it's more difficult to project. I've seen numbers as low as 1%, I've seen numbers as high as 2.3%, the ones I look at closely. But I think the range might even be between 1% and 3% overall. So, quite a diversity this time around.

Stipp: You are little bit more bearish than some of the other economists out there. What range are you looking at?

Johnson: I am looking at a narrow range of 1% to 2%, and the main reason I am a little bit more negative than most is that I focus a lot on auto production, and auto production contributed 1.2% to the 1.9% GDP growth we saw in the first quarter, and this quarter I project that it will take off at least 0.5%. So, it's a big swing factor that basically wipes out all the GDP growth we had in the first quarter.

Stipp: Autos are actually a pretty important piece. So even though the manufacturing economy in the U.S. is smaller than it once was, you see a lot of knock-on effects from the problems that we had with supply chains in autos. How has that been flowing through some of the results you've been seeing?

Johnson: Well, it affects so many different things, and again, even though auto manufacturing is not big, it touches on steel, plastics, rubber, cloth, all of those things are used by the auto industry. So, it's touched a lot more than people think. Direct auto production might be a relatively smaller percentage of GDP, but when you think of all the things that supply up to into it, it gets to be a bigger number, maybe up towards 4% to 5%.

Stipp: And then from the consumers point of view, we did see auto sales trail off because there was also higher pressure on prices because of some of those shortages, right?

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